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When you’re younger, you might approach retirement planning in broad strokes. You might entertain lofty visions of jet-setting to exotic locales or vacationing on leisurely international cruises. But as you near your second jubilee, you might settle into a new reality. It’s helpful to break up financial considerations into different stages. You’ll have different needs at different points during your retirement. And in turn, you’ll need to make adjustments to your spending plan.

In our three-part Budgeting in Retirement series, we covered what to think about money-wise in the first 5 years of retirement and in years 5 to 10. In our third and final installment, we’ll cover budgeting tips in years 10 to 20:

Focus on Ways to Lower Your Income

If you retire at age 65, at age 75, your Social Security benefits, any pensions and your required minimum distribution (RMD) withdrawals from your retirement accounts will be in full swing. Since RMD withdrawals are based on remaining life expectancy, the percentage of what you need to withdraw gets bumped up every year, says Jeffrey Burke, founder of 7th Street Financial.

By the time you hit your 80s, this percentage will be in the 6% – 8% range, says Burke. In contrast, the percentage is 4% – 6% in your 70s. “As this will push your income higher, and possibly into a higher tax bracket, look for opportunities to reduce adjusted gross income (AGI) and not pay higher taxes,” he suggests. 

Set Up a College Fund for the Grandkids

If you’d like to help the youth in your life, consider contributing to a 529 college savings plan, suggests Burke. Check with the parents to see if there’s an existing 529 plan in place. If not, you can open an account for them. Anyone can open an account for a child: parents, grandparents, aunts, cousins, etc.

Besides helping future generations, you can reap tax-saving benefits. “You and your spouse can each contribute up to $15,000 per year to the account before encountering gift taxes,” says Burke. “529 plans even have a unique provision that allows a 5-year lump sum contribution. So, you and your spouse could each contribute up to $75,000 in a given year without gift taxes.”

Lump Your Charitable Contributions

If you’re planning to make charitable contributions, you might want to reconsider your approach, explains Burke. “With the tax law changes in 2018, which includes the increased standard deduction combined with the limits placed on certain itemized deductions, you might discover that your charitable contributions aren’t tax deductible,” he says. Because the standard deduction has pretty much doubled — $12,000 if you’re filing as a single person, and $24,000 for couples — you might not itemize your deductions, and may not get a write-off for making donations to charities.

By lumping contributions for several years, you can raise your deductions above the standard deduction limit. In turn, you’ll be able to take the tax deduction. Note: You can contribute up to 60% of your AGI toward charities in a given year.

Consider Increased Health Issues

As you get older, the odds of health issues continue to increase. You’ll want to consider the cost of deductibles, copays and prescriptions as these costs can add up, explains Danny G. Michael, a principal of Satori Wealth Management.

If you’re mulling over medical tourism and might travel to another country to save on procedures and care that might be costly otherwise, you’ll want to factor in related expenses such as the cost of travel, accommodations and whether someone will be accompanying you to another locale.

Make Trade-Offs in Living Expenses to Accommodate Your Needs

The reality of your spending in your 70s and 80s is that your discretionary expenses will go down compared to your 60s and 70s, points out Robinson Crawford, founder of Montebello Avenue. “You won’t eat out as much, nor will you travel as much, but most of your bills will increase due to inflation,” says Crawford. “You’ll probably have more medical or in-house assistance that you’ll need to hire if family can’t live with you.”

Unless you plan on working part-time, or anticipate other changes in income, you’ll need to carefully factor in these increased expenses and make trade-offs in other areas. Perhaps you won’t be able to travel as much or enjoy fine dining. But you could spend your time engaged in low-cost hobbies that keep your mind sharp and body active and add to your quality of life.

Factor in Changes Due to the Passing of a Loved One

It’s sobering to think about, but there’s a greater likelihood that your spouse might require long-term care or might pass away. “Long-term care expenses are extremely expensive and are increasing at a much higher rate than normal inflation,” says Michael.

Once you hit 65, there’s a 70% chance that you’ll need some form of long-term care in your later years. “In the absence of long-term insurance, it’s important to understand how fully absorbing this cost can impact your expenses,” says Michael. “You’ll want to analyze all your options to fund this need.”

While there are far pleasant things to think about, understanding the financial reality of a spouse falling ill or passing will help you best prepare. In the case your spouse passes, while your expenses might go down slightly, your income typically goes down even more than your expenses. “When one spouse passes, the surviving spouse will lose the lower Social Security benefit, explains Michael. Or in the case of pensions, the survivor’s benefit will be reduced. “When your income decreases, it’s important to understand the difference between income and expenses to ensure your withdrawal rate isn’t too high, which increases the risk of outliving your assets,” says Michael.

Being realistic about your true needs and how it will affect your budget will help you ensure you create a budget where you can live comfortably. In turn, it will reduce the stress of the inevitable unknowns that will occur during your retirement years.

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